Getting the Life
Insurance You Need
Protecting your family
against the financial consequences of your death should be part of your
total financial plan. The decisions you need to make are:
How much do you need?
What type should you buy?
Where should you buy it?
No one likes to think
about dying and as a result, many individuals put off making these decisions.
Here are some guidelines that can make the process easier.
How much life insurance?
While some individuals use life insurance as part of sophisticated estate
plans, for most life insurance is simply a way to make sure their spouse
and children can continue to have a decent lifestyle if they die prematurely.
or married individuals with working spouses, may find their real need
for life insurance to be low or non-existent. If no one is dependent on
your income to maintain their financial independence, you should carefully
consider whether spending for life insurance is the best use of your funds.
It could be that your savings and investments will be sufficient.
If others are dependent
on your income, life insurance should be part of your financial strategy.
There are many complex ways to calculate the amount of coverage you should
consider that take inflation, debts, children, retirement plans and estimated
investment returns into account.
If you want that type
of calculation, try some of the insurance websites. If you want a simpler
approach, consider that many insurance experts say that a "primary
breadwinner" should have coverage equal to six to ten times income.
For example, if you have income of $75,000, you may want to have life
insurance policies providing $450,000 to $750,000 of death benefits.
If you have young
children, dependents with special needs, large debts or other special
considerations, you may want to be on the high end of this range (or above).
For example, if you expect a child to attend a private college, the annual
costs could be over $40,000. To cover those expenses, you may want to
increase your coverage by some multiple of the annual cost to cover four
years and to take potential inflation into account.
What type of policy
is best for you?
The two basic types of life insurance policies are - term and cash value
whole life. Term insurance is just pure protection, payable on the death
of the insured and is cheaper. Cash value whole life policies provide
death protection and have a "cash build up" feature that acts
somewhat like a tax-deferred savings account. Usually, whole life insurance
is much more expensive. The accumulated "cash value" can also
be the source of low interest loans for the policyholder. When evaluating
these types of policies, be sure to consider all the costs, the amount
of death benefits and ask for a history of what the level of earnings
on the "cash value" the insurance company has paid previously.
You may find that it makes sense to "buy term and invest the rest."
Where can you find
The first place to begin is with your employer. Many companies offer some
life insurance as part of their employee benefit program. In some cases,
the companies pay the entire cost for a certain level of benefits and
then offer a supplemental insurance option. You often may have the ability
to buy a policy with benefits of one to three times your annual income.
The rates on these types of group plans are often very attractive.
Next, determine whether
you need the consultation services of an insurance agent. Many financial
institutions offer insurance through their investment departments and
have both term and whole life policies available.
If you are considering
life insurance as part of a sophisticated estate plan, it may make sense
to search out the services of a dedicated insurance agent.
In any case, be sure
to ask questions and get the coverage amount you need in the type of policy
you want. Investigate the insurance company. The agent should have ratings
reports available on the insurance company. Many public libraries also
have these ratings available.
Few people like to think about dying or the need for life insurance. Be
sure your financial plan provides the protection your family needs.